When Do Business Normally Estimates The Amount Of Uncollectible Accounts Expense

Why A Business Estimates The Amount Of Uncollectible Accounts Expense For The Fiscal Year

A business normally estimates the amount of Uncollectible Accounts Expense when it does not know exactly which amount of Accounts Receivable or Sales on Account will become uncollectible.

The adjusting entry to record for estimating the amount of uncollectible accounts is shown below:

                                       Uncollectible Accounts Expense a/c  XXX

 

                                                                                              Allowance For Doubtful Accounts a/c  XXX

 

                                                               (Allowance For Doubtful Accounts Is Recorded)

Here uncollectible accounts expense is an estimation of accounts receivable or sales on account while Allowance for Doubtful Accounts is a Contra Asset Account which is deducted from the ending balance of accounts receivable on the balance sheet in order to find out the book value or to Calculate the Net Realizable Value of Accounts Receivable.